Epsilon Energy Ltd. announced its 2012 second quarter results which showed a 538% increase in revenues compared to the same quarter in 2011 driven by increased production and sales volumes from its Marcellus Shale operations in Pennsylvania and revenues from its new gas gathering system; however, net income decreased significantly from the prior year due to a large gain in 2011 from a farmout agreement that did not recur in 2012. While revenues increased, net income decreased due to lower natural gas prices reducing the company's drilling pace and interest expenses associated with a new convertible debenture.

1. Epsilon Energy Ltd. Announces
2012 Second Quarter Results

2. Epsilon Energy Ltd. Announces 2012 Second Quarter
Results
http://at.marketwire.com/accesstracking/AccessTrack
ingLogServlet?docid=0810503001&sourceType=1http://
www.ccnmatthews.com/logos/20071024-
main_epsilon.jpgCONCORD, ONTARIO -- (Marketwire)
-- 08/07/12 -- Epsilon Energy Ltd. ("Epsilon")
(TSX:EPS) is pleased to announce its second quarter
2012 results. Interim Unaudited Condensed
Consolidated Financial Statements and Management
Discussion and Analysis for the three and six months
ended June 30, 2012 and 2011 are available on Sedar at
www.sedar.com or on Epsilon's website at
www.epsilonenergyltd.com.

3. EPSILON ENERGY LTD. HIGHLIGHTS
Three months ended Six months ended June
June 30, 30,
2012 2011 2012 2011
------------------------------------------------
Revenue By Product - Total
Period ($000)
Nat'l gas revenue ($000) $ 8,499.5 $ 1,676.3 $ 14,325.0 $ 3,495.9
Volume (MMcfe) 3,676.0 436.9 5,933.9 812.4
Avg. Price ($/Mcfe) $ 2.31 $ 3.84 $ 2.41 $ 4.30
Exit Rate (MMcfepd) 43.8 5.4 43.8 5.4
Oil revenue ($000) $ 230.3 $ (0.4) $ 498.7 $ 191.5
Volume (MBOE) 2.0 - 5.0 2.6
Avg. Price ($/Bbl) $ 112.75 $ 84.62 $ 99.90 $ 73.69
Exit Rate (BOEpd) 36.0 - 36.0 -
Midstream gathering system
revenue ($000) $ 1,970.5 $ - $ 3,324.1 $ -
------------------------------------------------
Total $ 10,700.3 $ 1,675.9 $ 18,147.8 $ 3,687.4
------------------------------------------------

4. In the second quarter of 2012, revenues increased
538% compared to the second quarter of 2011, and
44% sequentially from the first quarter of 2012. The
increase in revenues was driven by a significant
increase in production and sales volumes from Epsilon's
activities in the Marcellus Shale in Pennsylvania and
revenues from Epsilon's gas gathering and compression
system serving that same region. The increase in
production volume was offset by a $1.53 or 40%
decrease in the realized price per Mcf of gas in the
second quarter of 2012 versus 2011, and a $0.27 or
10% decrease in the second quarter of 2012 versus the
first quarter of 2012. Epsilon's natural gas production
exit rate as of June 30, 2012 was 43.8 Mmcf/day
compared to 36.8 Mmcf/day as of March 31, 2011 and
5.4 Mmcf/day as of June 30, 2011.

5. The Auburn gas gathering system ("Auburn
GGS"), of which Epsilon owns 35%, contributed
approximately $2.0 million in revenue during
the second quarter 2012, a 46% increase from
$1.4 million in the first quarter 2012. The
Auburn gas gathering system began operating in
September 2011 and gas began free flowing
through the Auburn compressor station to
Tennessee Gas Pipeline in mid-March 2012.
Construction of the compression facility was
completed in July 2012 and reached operational
capacity of 300 Mmcf/day.

6. Three months ended June
30, Six months ended June 30,
2012 2011 2012 2011
--------------------------------------------------------
Revenues:
Oil & gas revenues $ 10,700,325 $ 1,675,910 $ 18,147,826 $ 3,687,423
--------------------------------------------------------
Total revenues 10,700,325 1,675,910 18,147,826 3,687,423
-------------------------------------------------------
Operating costs and
expenses:
Project operating
costs 4,355,173 112,442 5,997,934 548,251
Depletion,
depreciation and
amortization 6,528,082 650,047 11,636,883 1,482,335
Accretion of de-
commissioning
liabilities 2,054 2,953 7,828 5,745
Impairment - 1,057,187 - 1,057,187
Stock based
compensation 193,244 358,310 175,844 551,507
General and
administrative 861,896 1,087,980 1,624,631 1,607,792
--------------------------------------------------------
Total operating
costs and
expenses 11,940,449 3,268,919 19,443,120 5,252,817
--------------------------------------------------------
Operating Loss (1,240,124) (1,593,009) (1,295,294) (1,565,394)
---------------------------------------------------

7. Other income and
expense:
Gain on farmout
agreement - 24,281,556 - 24,281,556
Interest income 16,474 10,128 60,350 21,127
Finance Expense (1,084,148) - (1,445,415) -
--------------------------------------------------------
Net other income
(expense) (1,067,674) 24,291,684 (1,385,065) 24,302,683
--------------------------------------------------------
Deferred income tax
(recovery) expense (172,615) - 332,749 -
NET (LOSS) EARNINGS $ (2,135,183) $ 22,698,675 $ (3,013,108) $
22,737,289
--------------------------------------------------------

8. Net income per
share, basic ($0.04) $0.46 ($0.06)
$0.46
Net income per
share, diluted ($0.04) $0.45 ($0.06)
$0.45
Weighted average
number of shares
outstanding, basic 49,773,900 49,716,252
49,760,076 49,716,252
Weighted average
number of shares
outstanding,
diluted 50,044,128 50,403,463
50,144,594 50,403,463

9. In 2012, Epsilon significantly reduced its drilling and completion
pace in the Marcellus Shale in response to lower natural gas prices.
As of June 30, 2012, 54 gross JV wells, (15.1 net) had been drilled
and completed. 46 of the 54 wells were online at June 30, 2012
and produced at a combined gross exit rate of 173.2 Mmcf per day
(43.8 net Mmcf per day).
The Company remains active in the core areas of Torquay and
Ceylon in southeast Saskatchewan. In November 2011, Epsilon's
operating partner commenced a six well program of vertical and
horizontal wells at Torquay targeting Midale and Bakken light oil.
Of the six gross wells (three net), five are in various stages of
completion or production and one well was drilled and abandoned.
In Ceylon, the Company participated in the drilling of three gross
wells (1.5 net) targeting the Bakken and Birdbear formations
during the first half of 2012. One of the wells is waiting on
completion, and the remaining wells were drilled and abandoned.

10. Net income for the three and six months ended June
30, 2012 decreased significantly as compared to the
same periods in 2011 due primarily to the recognition in
the prior period of a $24.3 million gain on the
Chesapeake farmout agreement assets. During the
period ended June 30, 2011, Chesapeake fulfilled its
first earning period carry obligation of $50.0 million.
Epsilon transferred ownership of 25% of its assets
pertaining to the Farmout Agreement with
Chesapeake, and recognized a gain on disposal of the
assets. Excluding this gain, there was a decrease in net
income for the three and six months ending June
30, 2012 as compared to the same periods in 2011 due
to interest expense in 2012 associated with the
convertible debenture that was issued in February 2012
to fund capital expenditures.

11. The term EBITDA consists of net income plus
interest, taxes, depreciation and amortization. EBITDA is not a
measure of financial performance under generally accepted
accounting principles and should not be considered in isolation
from or as a substitute for net income or cash flow measures
prepared in accordance with generally accepted accounting
principles or as a measure of profitability or liquidity.
Additionally, EBITDA may not be comparable to other similarly
titled measures of other companies. Epsilon has included EBITDA
as a supplemental disclosure because its management believes that
EBITDA provides useful information regarding our ability to
service debt and to fund capital expenditures and provides
investors a helpful measure for comparing its operating
performance with the performance of other companies that have
different financing and capital structures or tax rates. The
following table sets forth a reconciliation of EBITDA to net
income, which is the most directly comparable measure of financial
performance calculated under generally accepted accounting
principles.

12. Three Months Ended Six Months Ended
----------------------------------------------------------
30-Jun-12 30-Jun-11 30-Jun-12 30-Jun-11
----------------------------------------------------------
NET (LOSS)
EARNINGS $ (2,135,183) $ 22,698,675 $ (3,013,108) $ 22,737,289
Add Back:
Interest expense 1,084,148 - 1,445,415 -
Deferred income
tax (recovery) (172,615) - 332,749 -
provision
Depreciation,
depletion,
amortization, 6,528,082 650,047 11,636,883 1,482,335
and accretion
Non-cash share
based 193,224 358,310 175,844 551,507
compensation
Impairment - 1,057,187 - 1,057,187
Gain on farmout
agreement - (24,281,556) - (24,281,556)
----------------------------------------------------------
EBITDA $ 5,497,656 $ 482,663 $ 10,577,783 $ 1,546,762
----------------------------------------------------------

13. Epsilon Energy Ltd. is a North American onshore
exploration and production company with a current focus
in the Marcellus Shale in Pennsylvania, Bakken Shale in
Saskatchewan and Lower Smackover in Mississippi.
Forward-Looking Statements
Certain statements contained in this news release
constitute forward looking statements. The use of any of
the words "anticipate", "continue", "estimate", "expect",
'may", "will", "project", "should", 'believe", and similar
expressions are intended to identify forward-looking
statements. These statements involve known and unknown
risks, uncertainties and other factors that may cause
actual results or events to differ materially from those
anticipated in such forward-looking statements are based
on reasonable assumption but no assurance can be given
that these expectations will prove to be correct and the
forward-looking statements included in this news release
should not be unduly relied upon.

14. Special note for news distribution in the United States
The securities described in the news release have not been
registered under the United Stated Securities Act of
1933, as amended, (the "1933 Act") or state securities laws.
Any holder of these securities, by purchasing such
securities, agrees for the benefit of Epsilon Energy Ltd.
(the "Corporation") that such securities may not be
offered, sold, or otherwise transferred only (A) to the
Corporation or its affiliates; (B) outside the United States
in accordance with applicable state laws and either (1) Rule
144(as) under the 1933 Act or (2) Rule 144 under the 1933
Act, if applicable.
Contacts:
Epsilon Energy Ltd.
Lisa Bromiley
Vice President of Business Development
(281) 670-0002
lisa.bromiley@epsilonenergyltd.com
www.epsilonenergyltd.com